Supplemental Environmental Project (SEP) and Proposal Guidelines

A Supplemental Environmental Project (SEP) is an in-kind service or cash contribution to a project or program designed to advance environmental interests and which
a “Person” (meaning a state agency, any municipality, governmental subdivision of the state or the United States, public or private corporation, individual,
partnership, association, or other entity) agrees to perform in partial settlement of an enforcement action, but which the Person is not otherwise legally required
to perform, and for which the Person retains no monetary benefit, however remote.

In order to be considered as partial settlement of an enforcement action, a specific project must be approved by ADEQ’s director in consultation with the enforcement
manager assigned to the matter under the guidelines described herein and in pursuant to Arkansas Code Annotated §§ 8-4-103 (f)(3), 8-6-204 (e)(3), or
8-7-204 (e)(3). This guideline does not create any rights on behalf of the Person.

Reduction of Penalty

The final administrative penalty amount (without considering the amount approved for any SEPs) must be sufficient: (1) to have a deterrent effect on the individual
violator and on other violators in similar positions, and (2) to the extent possible, recapture the economic benefits of noncompliance plus some appreciable portion
of the gravity component of the penalty computation.

In general, a SEP will not justify more than a 35 percent reduction of the recommended administrative penalty; however, the director has the final authority
to establish the level of partial mitigation of a statutory penalty. In addition, at least a $1 expenditure for a SEP will be required to justify a $1
reduction in penalties. Projects that directly remediate environmental contamination or reduce pollutants entering the environment may be acceptable at a
1:1 ratio. SEPs determined by ADEQ staff to have only indirect environmental benefits may be accepted at a rate of $3 expended for every $1 reduction in the
penalty amount, or a 3:1 ration. These ratios are at the discretion of the director and may be modified.

Governmental entities (meaning state agencies or departments; districts, authorities, counties, municipalities, and other political subdivisions
of the state; and public utilities owned by a governmental entity) are eligible for reductions of up to 50 percent of their penalties on the basis
of SEP expenditures, as well as a ratio of a $1 reduction in penalty for every $1 spent on an accepted SEP, or a 1:1 ratio.

Any Person that is the subject of an enforcement matter is eligible to request a $1 reduction in penalty for every $1 spent, or a 1:1 ratio,
on a SEP that is specifically determined to result in a discernible beneficial change in the environment. This would include projects that go
beyond any legal requirement and result in direct reductions of pollutants entering the environment or actual remediation of contaminated sites.

Situations in Which SEPs May Be Appropriate

ADEQ will consider a SEP as part of an enforcement action if: (1) all violations are corrected through actions to ensure future compliance, (2) any pollution
resulting from such violations has been remediated or will be remediated by the implementation of the terms of the agreed enforcement action, (3) both general
and specific deterrence objectives are served, and (4) there is an appropriate relationship between the nature of the violation and the environmental benefits
to be derived from the project or there is an overriding public and environmental good to be served by implementation of the project.

Projects Which May be Accepted

Preferred projects are those that will directly benefit the environment in the community where the alleged violation occurred. Acceptable projects are those that
prevent pollution, reduce the amount of pollutants reaching the environment, enhance the quality of the environment, or contribute to public awareness of environmental
matters. Projects that are not acceptable are those that would be required to bring the respondent into compliance with the law or are otherwise required to be
completed or previously completed.

Compliance History. ADEQ shall have the discretion to review whether the Person has a history of non-compliance with
the environmental laws or regulations of this state or any other jurisdiction. The Person shall provide to ADEQ a history of all environmental
enforcement actions that have been issued and the compliance status of each. ADEQ may refuse the use of a SEP to mitigate an administrative civil
penalty where the Person has a history of non-compliance of the environmental laws or regulations of this state or any other jurisdiction.

Performance. The Person must demonstrate to ADEQ its ability to perform the SEP before any such agreement is presented
to ADEQ. Respondent must also provide a written report to the ADEQ division responsible for the action to show that the SEP has been properly
implemented, within a time period to be stated in the enforcement action. Any dollars that are not spent for the approved SEP within a duration
specified in the enforcement action shall be forfeited to ADEQ as a penalty.

Oversight/Tracking. Additional staff resources will be required to monitor performance. Every effort should be made
to ensure that the Person provides sufficient and timely data to facilitate any required staff efforts. If third-party oversight is necessary,
these costs must be borne by the respondent.

This proposal guideline is intended to be used by a “Person” who requests to mitigate the administrative civil penalty of an ADEQ enforcement action by a SEP.
In order for the enforcement staff to begin its evaluation of a proposed SEP, the following information is required:

Enforcement Action - Indicate the name of the entity and the location of the site associated with the enforcement action. Include
the city and county.

Regulatory Information - Provide a brief summary of all environmental enforcement actions, including compliance status,
relating to the site identified above. For on-site projects, provide all ADEQ and Environmental Protection Agency (EPA) permit and account numbers
related to this facility for all media.

Project Name - SEP Title

Project Manager - Provide the name, mailing address, telephone number, and fax number for the project manager, organization
conducting the project (if different from the Person), and the person who will be responsible for submitting status reports (if different from the project
manager). If the project will be conducted by a third party to the ADEQ enforcement action, the proposal should be accompanied by a letter or resolution
from the appropriate board, governing body, or executive staff expressing the organization's commitment to the project if approved.

ADEQ Contact Person - Provide the name, division, and telephone number of any ADEQ staff person who has assisted with the
development of this project.

Geographical Area to Benefit From Project - Identify cities, counties, and watersheds that would
benefit from the project.

Types of Projects:

Pollution prevention/reduction

Environmental restoration/protection

Environmental regulatory compliance/technical assistance

Environmental education/assistance

Other environmental projects beneficial to neighboring community

Project Description - Describe the project, including the following information: need for the project, availability of other
similar services or projects in the area, and project implementation tasks such as technology, operation, or process changes.

Expected Environmental Benefits - Explain the expected environmental benefits of this project and quantify the
environmental benefits to the extent practical.

For pollution prevention or reduction projects - Quantify the amount of each pollutant that is expected to be reduced beyond the level
required for environmental compliance. Specify the media (air, water, land) to be benefited.

For all other types of projects - Quantify the number of participants, programs offered, sites cleaned, types of contamination
contained/removed, acres restored or affected, etc.

Project Budget
- Provide projected initial and annual project costs with specific line item
expenditures. Costs must be clearly and solely attributable to the proposed SEP.

Project Schedule
- Provide a proposed schedule that addresses project implementation, the submittal
of status reports to ADEQ, and the anticipated completion date. Project implementation must not commence until after ADEQ has approved the SEP in an
executed enforcement action.

Accounting
- Describe how SEP contributions would be accounted for if a third party is the proposed
project implementer.

Reporting
- Describe the information and documentation that would be included in project status
reports. Project reports must provide sufficient information for ADEQ to monitor the project implementation status, to verify and document the proper
expenditure of SEP funds, and to evaluate the effectiveness and benefits of the SEP.

Prior Commitments and/or Regulatory Requirements:

Identify any applicable local, state, or federal regulations that would require implementation of this project or any part of this project.

Identify any binding private commitments to implement this project or any part of this project.

Identify any other requirement to implement this project or any part of this project.

Indicate the time frame for implementation of the project under any aforementioned commitments.

Certification of Expenditures by Respondent - Provide a separate certification that the proposed
SEP is solely attributable to the settlement of the current enforcement action and that no funding has been budgeted to the project prior to the approval
of the project, nor is the proposed project funded by grants, donations, low-interest loans, or other sources of funding not attributable to the Person's
normal budgetary process. Also certify that the proposed project is not being done, nor will receive credit, as part of an environmental incentive or
awards program offered by industry or by federal, state, or local government, etc.

Guideline for Community Proposals

This guideline is intended for use by a local government or organization requesting that a specific SEP be considered for its community. If your community
has a project that meets the criteria for a SEP, please provide the following information in case a regulated entity (Person as described in paragraph 1) in
your community or area should become involved in enforcement settlement negotiations that could include a SEP. This project request will be retained for future
consideration during ADEQ enforcement action settlements. A SEP is not required in an enforcement action settlement but is a settlement option that ADEQ may
propose and the Person might agree to conduct to mitigate civil penalties. There are no guarantees the project will be selected, only that it will be considered.

Project Recipient - Provide the name, mailing address, telephone number, and fax number for the
project manager, organization desiring the project be performed (if known), and the person who will be responsible for submitting status reports
(if different from the project manager). The proposal should be accompanied by a letter or resolution from the appropriate board, governing body,
or executive staff expressing the organization's commitment to the project if approved.

Name of Project - Title that identifies the SEP

ADEQ Contact - Provide the name, division, and telephone number of any ADEQ staff who has
assisted with the development of this project.

Project Description - Describe project, including (1) need for the project, (2) availability of other similar
services or projects in the area, and (3) project implementation tasks such as technology, operation, or process changes.

Expected Environmental Benefits - Explain expected environmental benefits of this project
and quantify the environmental benefits to the extent practical.

For pollution prevention or reduction projects - Identify the type of each pollutant expected to be reduced. Specify the
media (air, water, land) to be benefited.

For all other projects - Identify the sites cleaned, types of contamination contained/removed, acres restored or benefited,
number of participants, programs offered, etc.

Project Cost - Provide estimated project costs with specific line item expenditures. Costs must be
clearly and solely attributable to the proposed SEP.

Accounting - Describe how SEP contributions would be accounted for from receipt until expenditure
of the full amount.

Reporting - Describe the information and documentation that would be included in project status
reports. Project reports must provide sufficient information for ADEQ to monitor the project implementation status, to verify and document proper
expenditure of SEP funds, and to evaluate effectiveness and benefits of the SEP.

Availability of Other Funding - Describe the availability of funding for this project from
sources other than SEP contributors. Include sources of funding secured and applied for directly related to this SEP.

Additional Information - ADEQ reserves the right to require additional information prior to approval
of the proposed SEP*.

Deviation from this Policy

Consistent with the statutory provisions authorizing the use of SEPs, ADEQ’s director may deviate from the guidelines set forth above in extraordinary and
limited circumstances where there is an unquestionable benefit to human health or the environment that outweighs the considerations resulting in the development
of this policy. These extremely limited situations will be evaluated on a case-by-case basis by the director or the director’s designee and will be considered only
where the direct beneficial impact of the project is exceptional and falls to the individuals, community, or area potentially or actually affected by the violations.